When a spouse passes away, California homeowners often need to understand how the home’s tax basis may change before deciding whether to keep or sell the property. A step-up in basis may reduce future capital gains, but the result depends on how the home is owned and other circumstances. This overview explains the key questions to discuss with a qualified tax professional.

In California, if a married couple owns their home as community property, when one spouse passes away, both halves of the home's tax basis are generally stepped up to the home's fair market value on the date of death. This can significantly reduce or even eliminate capital gains taxes if the surviving spouse later sells the home.

Example

• You and your spouse bought your home for $500,000.
• At your spouse's death, the home is worth $1.8 million.
• Instead of only half the basis increasing, the entire property's basis is generally adjusted to $1.8 million(assuming it qualifies as community property).
• If the surviving spouse sells the home shortly afterward for around $1.85 million, there may be little or no taxable capital gain (before considering selling costs and the home sale exclusion).

This is one of the most valuable tax benefits available to married homeowners in California.

Did you know? California homeowners may receive a full step-up in tax basis when a spouse passes away if the home is held as community property. This can save families tens or even hundreds of thousands of dollars in capital gains taxes. If you're navigating this situation, understanding your options before selling is important.

This information can be especially helpful for widows, widowers, and families considering a home sale or future move. Learn more about senior downsizing and trust home sales in Orange County, or read the Orange County Downsizing Guide. Consult a qualified tax or legal professional for advice about your specific situation.